Climate Change Stars in Federal Energy Regulatory Commission’s Updated Policy on Certification of New Natural Gas Infrastructure

FERC’s revised policy is found in the Updated Policy Statement on Certification of New Interstate Natural Gas Facilities (Docket No. PL18-1) (Updated Policy Statement) and the Interim Policy Statement on the Consideration of Greenhouse Gas Emissions in Natural Gas Infrastructure Project Reviews (Docket No. PL21-3) (Interim GHG Policy Statement), a separate policy created to describe FERC procedures for evaluating climate effects under NEPA and how FERC will integrate climate considerations into its PCN findings under the NGA, including considerations for climate impact mitigation (collectively, the 2022 Certificate Policy Statement). The 2022 Certificate Policy Statement fundamentally changes how FERC will assess whether a natural gas pipeline is required by the PCN under NGA Section 7 and if a liquified natural gas (LNG) terminal may be authorized under NGA Section 3. FERC’s prior policy was adopted in 1999.¹

FERC intends to apply both policy statements immediately even though the Interim GHG Policy Statement may change following a comment period that closes April 4, 2022. FERC also will apply the 2022 Certificate Policy Statement to the approximately 30 projects with NGA Section 3 and 7 applications pending before FERC. These pending projects, some filed over two years ago, will be further delayed as FERC provides applicants the opportunity to supplement the record to explain how their projects are consistent with the new policy statements and provides stakeholders the opportunity to respond.

The 2022 Certificate Policy Statement was approved on party lines, with FERC’s three Democrats supporting the changes and the two Republicans dissenting on grounds that the agency overreached its statutory authority.

Policy Changes Affecting Natural Gas Infrastructure Are Both Subtle and Seismic

The 2022 Certificate Policy Statement represents a noticeable shift from FERC’s prior policies for natural gas infrastructure review. The 1999 Certificate Policy Statement focused on fostering competitive markets to serve demands for natural gas while protecting captive customers and avoiding unnecessary environmental and community effects. The new policies emphasize avoiding unnecessary environmental and community effects ahead of meeting market demands for natural gas. In many ways, the new policy statements can be read as treating natural gas more as a nuisance than a commodity deemed to be in the “public interest” by Congress. Some of the most notable policy changes are as follows.

• Reliance on Market Need and Competition No Longer Sufficient: Market and competitive forces were the primary focus of the 1999 Certificate Policy Statement and seen by FERC as disciplining forces for overbuild. These factors are no longer expressly included in the new policy and in some cases may be deemed insufficient as rationales for new infrastructure projects. FERC seeks to have more direct control in determining whether a proposed project results in overbuilding based on its assessment of whether the market is already being served by existing pipelines.
• The NGA’s “Public Interest” Standard Is Expanded and Now Includes Climate Change: The NGA references “the business of transporting and selling natural gas for ultimate distribution to the public” as being “affected with a public interest.”²  The Supreme Court interpretated “public interest” under the NGA as being limited to “encourage[ing] the orderly development of plentiful supplies of … natural gas at reasonable prices.”³  In the 2022 Certificate Policy Statement, FERC broadens its interpretation of the NGA’s “public interest” requirement to include “all public interest factors,” including environmental factors. It bases this broader viewpoint primarily on one D.C. Circuit decision colloquially referred to as Sabal Trail.⁴ Sabal Trail stated that FERC is permitted to deny a certificate when the “pipeline would be too harmful to the environment” in the context of evaluating whether FERC’s NEPA review should have considered the reasonably foreseeable effects of downstream GHG emissions related to the combustion of natural gas by the project’s power plant customers.⁵ FERC relies on two other D.C. Circuit decisions that criticized, one in dicta, the sufficiency of FERC’s NEPA reviews with respect to GHG emissions.⁶ However, the D.C. Circuit has never rejected the market-based framework on the 1999 Certificate Policy Statement. The dissenting opinions refer to Sabal Trail as an aberration and contrary to binding Supreme Court precedents.
• Concrete Metrics Created to Assess GHG Emissions; Concrete Metrics Removed to Assess Project Need: Project applicants no longer have concrete metrics by which to evaluate project need. The former no-subsidization requirement essentially was a numerical test. The Updated Policy Statement lists a number of factors that could be used to support a finding of need but makes FERC the ultimate arbiter of whether the project proponent has met its burden. The elevation of the environment and climate as a factor in FERC’s decision making is shown by the new policy’s only defined metric, which is the benchmark FERC will use to assess the significance of a proposed project’s contribution to climate change. The threshold of 100,000 metric tons per year of CO2e (based on a “full-burn” analysis) will now determine whether a project requires an environmental impact statement (EIS) under NEPA. FERC stated that the threshold will capture all projects transporting an average of 5,200 dekatherms per day, or involving the operation of one or more compressor stations, and all LNG facilities. In setting this threshold, FERC goes further than the White House Council on Environmental Quality (CEQ), which has to date declined to set a GHG emissions significance threshold for federal agencies implementing NEPA.
  • The new standard has the effect of subjecting almost every pipeline expansion project to an EIS. Previously, compression-based expansions and short looping projects within a pipeline’s right-of-way proposed to expand capacity efficiently with the least impact on landowners and ratepayers were evaluated under NEPA using an environmental assessment (EA). More extensive EIS reviews generally were limited to projects requiring greenfield pipeline construction. FERC justifies this policy change on “the dire effects at stake” from climate change, noting that “even relatively minor GHG emissions pose a significant threat.”
• Possible Rebuttable Presumption That Downstream GHG Emissions Are Reasonably Foreseeable: NEPA permits consideration only of those environmental effects that are “reasonably foreseeable.” FERC provides that upstream and downstream emissions may be “reasonably foreseeable” on a case-by-case basis. However, the Interim GHG Policy Statement also suggests that it is a rebuttable presumption that all downstream GHG emissions are foreseeable on the grounds that “the vast majority of all natural gas consumed in the United States is combusted.” Because of controlling D.C. Circuit case law, FERC finds that NGA Section 3 LNG export facility projects are not the legally relevant cause of upstream and downstream emissions.
• End-Use of Gas May Determine Project Need: Another way FERC has taken control of project development away from market forces is through its announcement that it may consider the end use of gas and the effect of natural gas combustion on air pollution as a factor in assessing the public interest. Taken to its logical conclusion, and hypothetically speaking, a pipeline proposed to serve industrial customers that combust natural gas to produce energy-intensive products, such as aluminum, may not survive FERC’s public interest review, whereas a project needed to supply natural gas to balance the use of intermittent renewable generation facilities, such as wind and solar, may be deemed more in the public interest.
• Mitigation Measures for GHG Emissions Will Inform Public Interest Finding: Project proponents are encouraged to propose mitigation measures, such as through the purchase of carbon offsets or investments in new technologies, such as carbon capture and sequestration. FERC will allow project proponents to propose rates that recover these costs under NGA Sections 7 and 4, subject to just and reasonable reviews under NGA Section 4.
• A Project’s Contribution to Cumulative Impacts on Environmental Justice Communities May Prevent a Public Interest Finding: FERC amends its NGA balancing test to include environmental justice communities when it considers a proposed project’s adverse effects on landowners. However, adverse effects under the NGA’s “public interest” standard are expanded to include a NEPA construct of “cumulative impacts”⁷ when assessing effects on environmental justice communities. FERC does not define what constitutes an “environmental justice community,” and places the burden on the applicant to ensure that FERC has all data before it to adequately identify environmental justice communities potentially affected by a proposed project, including review of EPA and CEQ guidance, which those agencies are updating and which may evolve over the course of a pending application. FERC reserves the right to incorporate additional EPA and CEQ guidance on identifying environmental justice communities whenever it is issued.

Potential Challenges to the New Policy Statements

FERC’s stated intent for the 2022 Certificate Policy Statement is to provide “more clarity and regulatory certainty” in the agency’s review process. However, the process may be very uncertain, at least in the near term, as the policy change is likely to face significant legal challenges from pipeline developers, their customers, and other interests, either now or as applied to a particular pipeline project. When and whether the 2022 Certificate Policy Statement is subject to judicial review may depend on whether it has legal consequences as opposed to being a nonbinding statement of how FERC will interpret the law. The Interim GHG Policy Statement also raises questions concerning whether it constitutes final agency action. It applies right away to pending projects but has a comment period that closes on April 4, 2022, indicating that elements of the policy are subject to change. The agency may also have an opportunity for additional revisions. FERC clarified the 1999 Certificate Policy Statement twice in subsequent orders and may similarly clarify the 2022 Certificate Policy Statement. Giving these dynamics, we foresee a number of avenues for stakeholders to challenge the 2022 Certificate Policy Statement now and in the future, ranging from possible immediate challenges brought by certain project developers facing immediate effects from the policy change to industry challenges that the policy statements are beyond the agency’s authority or otherwise unlawful to future projects that are denied after the “interim” guidance is finalized.

The following chart, linked here, highlights some of the major changes to the FERC review process.

¹Certification of New Interstate Natural Gas Pipeline Facilities, Statement of Policy, 88 FERC ¶ 61,227, modified by 89 FERC ¶ 61,040 (1999), Order Clarifying Statement of Policy, 90 FERC ¶ 61,128, Order Further Clarifying Statement of Policy, 92 FERC ¶ 61,094 (2000) (noting the policy statement’s limited application beyond newly constructed facilities).

²15 U.S.C. § 717(a).

³NAACP v. FPC, 425 U.S. 662, 669-70 (1976) (citations omitted) (NAACP).

⁴Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017) (Sabal Trail).

⁵Id. at 1373.

⁶The majority also relies on Birckhead v. FERC, 925 F.3d 510 (D.C. Cir. 2019), a case that discussed FERC’s GHG emissions review process under NEPA in dicta) and Vecinos Para El Bienestar de la Comunidad Costera v. FERC, 6 F.4th 1321, 1329 (D.C. Cir. 2021) (holding that FERC’s analysis was deficient under NEPA and the Administrative Procedure Act because it “failed to respond to significant opposing viewpoints concerning the adequacy of its analyses of the projects’ greenhouse gas emissions”).

⁷ FERC defines “cumulative impacts” for its NGA review of environmental justice impacts using the definition for “cumulative impacts” found in prior iterations of the NEPA regulations at 40 C.F.R. § 1508.7 (1978).